Thursday, June 6 2024 10:48

ArmInfo. A meeting was held under the chairmanship of the Prime Minister of the Republic of  Armenia Nikol Pashinyan, during which a package of bills adopted by the National Assembly in the first reading was discussed, proposing to revise the turnover tax rates.

According to the press service of the Prime Minister's office, in  particular, the turnover tax system, existing problems and possible  ways to solve them were touched upon. A discussion of tax policy  issues took place.

The Prime Minister noted that it is necessary to correctly formulate  the motives, and emphasized that the government has adopted a policy  according to which the turnover tax should be completely abandoned in  Armenia, since it distorts the economy, the tax system and creates an  unhealthy economic environment.  According to Nikol Pashinyan, the  process should be implemented in stages, and it is necessary to  switch to a common single tax system.

Following the discussion, the head of government instructed to  continue implementing the necessary steps to improve the tax sector.

According to the initiative of the Cabinet of Ministers, it is  proposed to double the turnover tax rates, and subsequently to  abandon the system altogether. The main goal of the turnover tax  system as an alternative to the main taxation system is to provide  business entities with the opportunity to carry out activities in  conditions of simple tax accounting and soft administration. However,  research shows that instead of an alternative general taxation  system, the turnover tax system has turned into a preferential  taxation system.  In particular, when comparing the tax burden of the  general taxation system (VAT and income tax) and the turnover tax  system in certain areas of economic activity, it turned out that in  almost all industries (except for those industries in which the main  transactions are exempt from VAT) The burden of the general taxation  system significantly exceeds the burden of the turnover tax. Thus,  the total tax burden for VAT and income tax in the manufacturing  industry exceeds the burden for turnover tax by 2 times, in  construction - by 2.6 times, in the field of trade - by 2.6 times, in  the field of accommodation and public catering - 3 times, in the real  estate sector - 2.1 times, in the field of professional, scientific  and technical activities - 2.8 times.

In addition, past experience and studies of the activities of the  turnover tax and micro-enterprise systems show that the types of  activities allowed in these tax systems are either similar in nature  to the types of activities prohibited in these systems, or, due to  their characteristics, are accompanied by other types of activities  that cannot be taxed in these taxation systems, for example,  commercial activities in the city of Yerevan cannot be taxed in the  micro-entrepreneurship system, and car maintenance activities, within  the framework of which very often there is also the sale of goods  (spare parts), can be carried out in a micro- entrepreneurship  system.

Taking into account the above, the Ministry of Finance proposes to  revise the turnover tax system from October 2024, and from 2025 to  narrow the scope of beneficiaries of the micro-enterprise system. The  goal is to reduce the difference between the tax burden of the  turnover tax system and the general taxation system, increase  incentives to document the expenses of business entities, and also  make the two taxation systems for SMEs more targeted. Thus, according  to the initiative, the turnover tax rates established for main types  of activities will be revised, with the possibility of reducing the  tax payable through documented expenses. At the same time, it is  proposed to set rates below the current minimum or fixed rates; in  this case, the tax burden may be reduced for business entities that  have the appropriate level of documentation. For the above types of  activities, establish a unified approach to the possibility of  reducing the tax payable through documented expenses.

In particular, today a 5% turnover tax rate has been established for  entrepreneurs in the field of trading activities, with the  possibility of deducting 4% of documented expenses from liabilities,  but not less than 1.5% of turnover. As part of the initiative, it is  proposed to set a rate of 10% of income with the possibility of  deducting 9.5% of expenses, but not less than 1.0% of turnover. Then  the already effective tax will increase from 2.3% to 4.1%, providing  the state treasury with additional taxes in the amount of 4.9 billion  drams.

Representatives of public catering at this stage work with a 6%  turnover tax with the possibility of a tax deduction of 3% of  documented expenses, but not less than 4% of turnover. As the  Ministry of Finance previously stated, Armenian restaurateurs  currently pay an average of 4.3% of sales turnover, which they assess  as a low tax burden. In this regard, it is proposed to establish a  12% turnover tax with the possibility of a tax deduction of 9% of  documented expenses, but not less than 3.5% of turnover. In this  case, the effective tax will increase from 4.3% to 6.6%, providing  the state treasury with additional taxes in the amount of 4.9 billion  drams.

Changes are also planned for representatives of production  activities. Currently the sales tax rate is 3.5%.  It is proposed to  set a rate of 7% of income with the possibility of deducting 5% of  expenses, but not less than 3.5% of turnover. In this case, the  effective tax will increase from 3.0% to 5.3%, providing the state  treasury with additional taxes in the amount of 0.6 billion drams.

For other types of activities, the current sales tax rate is 5%. It  is proposed to set a rate of 10% of income with the possibility of  deducting 6% of expenses, but not less than 4.5% of turnover. In this  case, the effective tax from 5% will increase to 8.5%, providing the  state treasury with additional taxes in the amount of 8.7 billion  drams. The authorities also plan to expand the range of activities  prohibited from taxation in the micro-enterprise tax and turnover tax  systems. In particular, from 2025 it is recommended to limit the  ability to engage in notarial, lawyer's activities and organization  of lotteries in the turnover tax system, in the micro-enterprise  taxation system, the activities of taxpayers engaged in the purchase  and sale and/or rental of real estate, hairdressing services, care  body, car maintenance services, software development and construction  work, assessment and measurement of real estate, activities for the  organization of baths and saunas. They will have to operate either  under the sales tax or VAT system.

The adoption of the project promises the state budget an annual  increase in turnover tax revenue of approximately 17.8 billion drams.